ECONOMICS 0455/02 Paper 2 Structured Questions For examination from 2020 MARK SCHEME Maximum Mark: 90. Specimen

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1 Cambridge IGCSE ECONOMICS 0455/02 Paper 2 Structured Questions For examination from 2020 MARK SCHEME Maximum Mark: 90 Specimen This document has 16 pages. B lank pages are indicated. [ T urn over

2 Generic Marking Principles These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles. GENERIC MARKING PRINCIPLE 1: Marks must be awarded in line with: the specific content of the mark scheme or the generic level descriptors for the question the specific skills defined in the mark scheme or in the generic level descriptors for the question the standard of response required by a candidate as exemplified by the standardisation scripts. GENERIC MARKING PRINCIPLE 2: Marks awarded are always whole marks (not half marks, or other fractions). GENERIC MARKING PRINCIPLE 3: Marks must be awarded positively: marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate marks are awarded when candidates clearly demonstrate what they know and can do marks are not deducted for errors marks are not deducted for omissions answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated by the mark scheme. The meaning, however, should be unambiguous. GENERIC MARKING PRINCIPLE 4: Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level descriptors. GENERIC MARKING PRINCIPLE 5: Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited according to the quality of the candidate responses seen). Page 2 of 16

3 GENERIC MARKING PRINCIPLE 6: Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in mind. Page 3 of 16

4 Section A 1(a) Calculate the number of people unemployed in Kenya in million (1). 1(b) Identify two reasons why the total amount saved in Kenya is likely to have increased in Higher income/real GDP per head (1) a higher interest rate (1). 1(c) Explain the effect that a rise in the price of flowers on Women s Day in Russia would be likely to have on flower producers revenue. 2 Increase (1) as demand is price-inelastic (1). 1(d) Analyse the evidence that shows the market for flowers is sometimes in disequilibrium. 4 Coherent analysis which might include: Demand exceeding supply/shortages occurring (1) price being too low (1) the market not clearing (1). Supply exceeding demand/surplus occurring (1) price being too high (1) the market not clearing (1). 1(e) Explain two reasons why the price of Kenyan flowers may have fallen in the US in Logical explanation which might include: Rise in productivity (1) this could have reduced costs of production (1). Depreciation of the exchange rate (1) would have lowered price of Kenyan exports (1). Page 4 of 16

5 1(f) Analyse the relationship between real GDP per head and the adult literacy rate. 5 Coherent analysis which might include: The relationship shown is largely a positive one (1) as real GDP per head rises so does adult literacy (1) example that supports the relationship (1) Uganda is an exception (1). Countries with a higher adult literacy rate are likely to have more skilled workers (1) capable of producing a higher output (1). Countries with a higher real GDP per head are likely to have more funds to spend on education (1) more and higher quality education is likely to increase adult literacy (1). 1(g) Discuss whether or not an increase in wages will always attract more people to work in Kenya s flower industry. 6 6 marks maximum for the question. Award up to 4 marks for logical reasons why they might, which might include: Unemployment may remain high (1) resulting in people searching for jobs (1). Wages are a key influencing factor in the jobs that people select to do (1) increases in wages can raise living standards (1) enabling people to consume more goods and services (1). Higher wages may enable some people to escape poverty (1) allowing them to afford basic essentials (1). Population is increasing (1) more people are likely to be entering the labour force (1). Award up to 4 marks for logical reasons why they might not, which might include: Wages may rise more in other industries (1) reducing the relative pay in the cut flower industry (1). Wages may rise by less than inflation (1) reducing real wages (1). Workers do not base their decisions just on wages/non-wage factors may be better in other industries (1) examples e.g. better promotion opportunities, better working conditions, longer holidays (up to 2 marks ). Page 5 of 16

6 1(h) Discuss whether or not Kenya should continue to specialise in producing flowers. 6 6 marks maximum for the question. Award up to 4 marks for logical reasons why it should, which might include: Kenya has suitable factors of production (1) e.g. a ready supply of labour (1). Productivity has been increasing (1) if this continues Kenya may have a cost advantage (1). The country has a good reputation in producing good quality cut flowers (1) this may increase demand for its cut flowers (1). Cut flowers tend to be a luxury good (1) as income rises, demand may increase (1). Award up to 4 marks for logical reasons why it should not, which might include: Supply is affected by weather conditions (1) this can lead to instability of income (1). The exchange rate could rise (1) making exports more expensive (1) which could reduce earnings from selling flowers (1). Competition from other countries may increase (1) reducing Kenya s share of the market (1). Section B 2(a) Define budget deficit. 2 Government spending exceeding (1) government (tax) revenue (1). 2(b) Explain two reasons why a country may experience a decline in living standards at the same time as an increase in real GDP per head. 4 Explanations which might include: Income may become more unevenly distributed (1) resulting in most people s living standards falling (1). Higher output may increase pollution (1) this may cause health care problems (1). The shadow economy may have shrunk (1) reducing output per head (1). Working hours may have increased (1) reducing leisure time (1). Working conditions may have declined (1) reducing the health of workers (1). More resources may have been devoted to producing capital goods (1) which may reduce the availability of consumer goods in the short run (1). Page 6 of 16

7 2(c) Analyse how a fall in unemployment may increase a country s inflation rate. 6 Coherent analysis which might include: A fall in unemployment may increase incomes (1) this may increase consumer spending (1) increasing total (aggregate) demand (1) causing demand-pull inflation (1). A fall in unemployment may result in a shortage of workers (1) this may raise wages (1) increasing firms costs of production (1) causing cost-push inflation (1). Page 7 of 16

8 2(d) Discuss whether or not a country will gain from the emigration of some of its people. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be onesided. There is relevant use of economic concepts, terminology, information and data appropriate to the question There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding A mark of zero should be awarded for no creditable content. 0 Why it might gain: Emigration of dependents, would reduce the burden on the working population, would reduce government spending on benefits/pensions, which means government spending on other items can increase. If there is overpopulation/population above the optimum level, output per head should rise/more efficient use can be made of resources. Workers who emigrate may send money back to relatives; this may increase living standards. Emigrants may later return to the country bringing new skills with them; this may raise the productivity of the labour force in their country of origin. Why it might not gain: Skilled workers may emigrate. This will reduce the quality of the labour force, lower productivity, and discourage MNCs from setting up. If people of working age emigrate, the dependency ratio will increase. If there is under-population/population below the optimum level, output per head would fall/less efficient use can be made of resources. With lower output less advantage can be taken of economies of scale. Page 8 of 16

9 3(a) Define maximum price. 2 A price that producers cannot charge above a price ceiling (1) set by the government (1). 3(b) Explain two reasons why the supply of bananas may decrease. 4 Logical explanations which might include: a period of bad weather/natural disaster (1) this would decrease the crop (1) a rise in costs of production (1) e.g. higher wages paid to farm workers would make it more expensive to produce the product (1) a government tax (1) this acts as a disincentive/is an extra cost (1) the removal of a subsidy (1) would reduce the incentive to produce the product (1) a change in the price of other crops (1) may encourage a shift of resources (1) change in the availability of land (1) e.g. flooding may reduce the supply of land (1). 3(c) Analyse the factors which lead an MNC to produce in particular countries. 6 Coherent analysis which might include: Size of market (1) if demand for the product/s produced is high in the country (1) higher revenue may be earned (1). Costs of production (1) e.g. low wages/low raw material costs may attract multinational companies (MNCs) (1). Availability of raw materials (1) certain raw materials e.g. copper may be found in a small number of countries (1). Trade protection (1) MNCs may set up in a country to get round tariffs (1). Government subsidies (1) financial help may be given to companies setting up in some countries (1). Fewer government regulations (1) MNCs may set up in countries with fewer rules and laws (1). Skills of workers (1) highly skilled workers will produce products of a good quality (1). Page 9 of 16

10 3(d) Discuss whether or not a government subsidy given to fruit producers will benefit consumers. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be onesided. There is relevant use of economic concepts, terminology, information and data appropriate to the question There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding A mark of zero should be awarded for no creditable content. 0 Why it might benefit: It may provide a financial incentive to producers; effectively lowers costs of production; likely to increase supply; lower prices; enabling consumers to buy more/raising purchasing power. It may improve the quality of fruit; farmers will have more money to invest. Fruit is a merit good; consumers underestimating the private benefit to themselves of consuming fruit; they may gain health benefits from eating more fruit. Why it might not benefit: The subsidy may not be passed on to consumers in the form of lower prices. Price will fall by a smaller amount if demand is elastic; poorer consumers may still not be able to afford to buy fruit. The subsidy may make producers complacent; may lower quality in the long run. Providing a subsidy involves an opportunity cost; consumers might benefit more from other products being subsidised. Page 10 of 16

11 4(a) Identify two characteristics of money. 2 One mark each for any two from: general acceptability/limited in supply portable divisible recognisable homogeneous 4(b) Explain why governments provide public goods. 4 Explanations which might include: The private sector/market forces would not provide public goods (1). Public goods are non-excludable (1) it is not possible to exclude non-payers (1) so people can act as free riders (1). This means that private sector firms would have no financial incentive to provide public goods (1) such as defence (1). 4(c) Analyse how a central bank might reduce household borrowing. 6 Coherent analysis which might include: It might increase the rate of interest (1) this would increase the cost of borrowing (1) this may discourage households from buying items/encourage saving (1) that would require them to take out a loan (1). It might impose restrictions on the amount that banks can lend (1) these may limit the size of a loan a household can get (1) or increase the conditions that have to be met before a loan is given (1). It might reduce the money supply (1) which may reduce spending (1) and so may reduce demand for loans (1). Page 11 of 16

12 4(d) Discuss whether or not a government should impose tariffs on its country s imports. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be onesided. There is relevant use of economic concepts, terminology, information and data appropriate to the question There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding A mark of zero should be awarded for no creditable content. 0 Why they might impose tariffs: This will raise revenue for the government; this could be spent on e.g. healthcare/education. This may reduce demand for imports; improve the trade in goods position; and so improve the current account position. This may protect infant industries; these may grow and take advantage of economies of scale; become internationally competitive; so create output and employment. This may protect declining industries; preventing unemployment. This may prevent dumping; foreign firms selling at below cost price; domestic firms being driven out of business. This may protect consumers from harmful products. Why they might not impose tariffs: This may raise prices to consumers; consumers may not have domestic products to switch to; any domestic substitutes may be of a lower quality; so reduces variety for consumers. This may raise costs of imported raw materials; raise costs of production; cause cost-push inflation. This may lead to reduction in competitive pressure on domestic firms; so to inefficiency. There may be retaliation; with other countries imposing tariffs on the country s exports. There may not be domestic substitutes for imports; consumers may not stop buying imports; because of inelastic demand. Page 12 of 16

13 5(a) Define economic good. 2 There is an opportunity cost involved in producing the good (1) as it takes no resources to produce it (1). 5(b) Explain two influences on what factors of production a firm uses. 4 Explanations which might include: the type of product produced/size of the firm (1) for instance, producing nuclear power is capital-intensive (1) the productivity of factors of production (1) if, for instance, labour becomes more skilled, a firm might become more labour-intensive (1) the availability of factors of production (1) in some countries there may be shortage of oil or people of working age (1) the relative cost of factors of production (1) if capital is relatively expensive, labour-intensive methods of production may be used (1) Page 13 of 16

14 5(c) Analyse, using a production possibility curve diagram (PPC), the effect of the destruction of some of its resources on an economy. 6 Up to 4 marks for the diagram. GOOD X A B O B A GOOD Y axes correctly labelled (1) original curve/downward sloping line to axes (1) new curve present (1) shift to the left clearly indicated either by an arrow or by labelling (1) Up to 2 marks for coherent analysis which might include: the destruction of resources will reduce the maximum output a country can produce (1) this will move the production possibility curve to the left/closer to the origin (1) Page 14 of 16

15 5(d) Discuss whether or not the average cost of production always falls when a firm increases its scale of production. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be onesided. There is relevant use of economic concepts, terminology, information and data appropriate to the question There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding A mark of zero should be awarded for no creditable content. 0 Why it might fall: The firm may experience economies of scale; total cost will rise by less than total output (long run average cost may fall as output increases). The firm may experience buying/purchasing economies of scale; may be offered a discount price when buying raw materials in bulk. The firm may experience technical economies of scale; larger, more cost efficient technological equipment may be purchased to produce a higher output. The firm may experience managerial economies of scale; specialist staff may be employed when output is high. The firm may experience financial economies of scale; as output increases, it may be able to borrow more cheaply/or sell its shares at a lower price. The firm may experience R & D economies of scale; the R & D expenditure can be spread over a higher output. The industry may also be growing in size; enabling advantage to be taken of external economies of scale. Page 15 of 16

16 5(d) Why it might not fall: The firm may experience diseconomies of scale; total cost may rise by more than total output (long run average cost may increase as output increases). The firm may experience diseconomies of scale; this may make the firm slower to respond to changing market conditions/more difficult to keep costs down. The firm may experience communication problems; ideas may not be communicated or may be misunderstood. The firm may experience poor industrial relations; e.g. pushing up the costs of production. External diseconomies of scale may occur; e.g. pushing up the costs of production. Allow up to 2 marks for a correctly labelled average cost diagram which shows economies and diseconomies of scale as an alternative to describing average costs rising/falling as output increases. Page 16 of 16

ECONOMICS 2281/21. Published

ECONOMICS 2281/21. Published Cambridge International Examinations Cambridge Ordinary Level ECONOMICS 2281/21 Paper 2 Structured Questions May/June 2016 MARK SCHEME Maximum Mark: 90 Published This mark scheme is published as an aid